Calgarypuck Forums - The Unofficial Calgary Flames Fan Community - View Single Post - I'm a car salesmen, Go ahead and ask me anything

Machiavelli · 05-20-2008, 08:12 AM

^ This is an extreme example, though, of a car depreciating in value very quickly.

My argument still stands for a lower-mid range car like a Mazda. Please argue against my exact point so that I understand, because I'm still not fully grasping this.

Let's say I buy a used $2007 Mazda 3 for $18,000. I know right now that I only want to keep the car for 3 years. Let's say that I get a 6% car loan to pay all of it in cash. So the full cost of the car over 3 years will be around $21,300. In three years I then sell the car for $16,000. Total losses = $5,300. That's it. Nothing else to talk about. I have no car but I've only lost $5,300.

If I leased that same car with monthly payments of say, $350 for 36 month term, I have spent $12,600.

So, if I am understanding correctly, you are saying that although over that term, I would have spent $12,600, the difference between $21,600 and the little amounts that I would be paying over that time could have been invested (say at a return of 10%). At the end of the first year, my savings would be $21,600 - (350 x 12), which is $17,400 and which could be invested at 10%. However, since I don't have that $21,600 either way, I would be borrowing to invest, which would bring the returns down to 4% (10% - 6% line of credit). Then again, $17,400 invested over 12 months with compound interest at 4% is still pretty good (can't work it out in my head, however). But then of course the next year you'd have to spend another $4200 on the lease, and the principle that you get your return on investment on goes down a bit. Still, you make money off your savings. BUT, I don't think you could make $7300 off that to bring it up to par with buying (i.e. $12,600 spent on leasing minus $5300 lost by buying). I'm not sure exactly how it all works, but I think I'm starting to understand.

Also, leasing you only pay tax on monthly payments rather than lump sum on the entire price of the car, right?

Okay, I think typing it all out has made it make a little more sense to me.

Are my reasonings (well, ramblings) correct?

05-20-2008, 08:12 AM	#541
Machiavelli Franchise Player Join Date: Feb 2007 Exp:	^ This is an extreme example, though, of a car depreciating in value very quickly. My argument still stands for a lower-mid range car like a Mazda. Please argue against my exact point so that I understand, because I'm still not fully grasping this. Let's say I buy a used $2007 Mazda 3 for $18,000. I know right now that I only want to keep the car for 3 years. Let's say that I get a 6% car loan to pay all of it in cash. So the full cost of the car over 3 years will be around $21,300. In three years I then sell the car for $16,000. Total losses = $5,300. That's it. Nothing else to talk about. I have no car but I've only lost $5,300. If I leased that same car with monthly payments of say, $350 for 36 month term, I have spent $12,600. So, if I am understanding correctly, you are saying that although over that term, I would have spent $12,600, the difference between $21,600 and the little amounts that I would be paying over that time could have been invested (say at a return of 10%). At the end of the first year, my savings would be $21,600 - (350 x 12), which is $17,400 and which could be invested at 10%. However, since I don't have that $21,600 either way, I would be borrowing to invest, which would bring the returns down to 4% (10% - 6% line of credit). Then again, $17,400 invested over 12 months with compound interest at 4% is still pretty good (can't work it out in my head, however). But then of course the next year you'd have to spend another $4200 on the lease, and the principle that you get your return on investment on goes down a bit. Still, you make money off your savings. BUT, I don't think you could make $7300 off that to bring it up to par with buying (i.e. $12,600 spent on leasing minus $5300 lost by buying). I'm not sure exactly how it all works, but I think I'm starting to understand. Also, leasing you only pay tax on monthly payments rather than lump sum on the entire price of the car, right? Okay, I think typing it all out has made it make a little more sense to me. Are my reasonings (well, ramblings) correct? __________________ KNOWLEDGE IS POWER. I love power.